More planet and less profit? The ethical dilemma of an oil producing nation

Abstract

Every oil producing nation is confronted with a complex and fundamental ethical dilemma. On the one hand, there are moral arguments for the nation to use the petroleum resource for the benefit of society and make it available for countries who do not have this natural resource endowment. On the other hand, there are moral arguments for not extracting and using fossil fuels because of CO₂ emissions. In short, this creates tension between the need for government revenues to finance welfare benefits and the objective of preserving the environment. A complicating factor is that a nation’s domestic oil and gas activities are in its nature global because the activities have a direct impact on the global climate. In this paper, I address a question that to my knowledge is rarely discussed in the business ethics literature: how does an oil producing nation try to resolve this fundamental ethical dilemma? Using Norway as a case, I argue that the nation is well aware of this ethical dilemma, but that there are few signals from the government that it wants to reduce the petroleum activities. Instead, Norway tries to seek redemption by (1) using the financial power of the Oil Fund to promote sustainability issues abroad and (2) building an international brand as an “Environmentally Conscious Energy Nation.”

Keywords:

• ethical dilemma
• sustainability
• petroleum
• oil
• sovereign wealth fund

PUBLIC INTEREST STATEMENT

For the last fifty years, the petroleum industry has been the backbone of the Norwegian economy, and it will remain so for at least the next fifty years. But there is an increasing public concern about the oil industry’s contribution to making climate change worse. Hence, there is an ethical dilemma between, on the one hand, generating income to develop the country and the welfare of the people, and on the other hand, the environmental problems associated with oil and gas activities. This creates tension, which is impossible to ignore for a nation. I argue that Norway tries to ease this ethical tension by using the financial power of the Oil Fund, the world’s largest Sovereign Wealth Fund, to promote sustainability issues and to build a brand as a global promoter of protecting the environment.

Acknowledgements

I thank two anonymous reviewers for their useful comments and suggestions. I am also grateful for the useful comments from the participants at the 25th International Vincentian Business Ethics Conference (IVBEC 2018), New York, NY, October 25th - 27th, 2018.

Conflicts of Interest

The author declares that he has no conflicts of interest.

Notes

1. See Ayling (2017) for a discussion on the legitimacy of the disinvestment movement and Lenferna (2019) for a discussion on the morality of divestment in fossil fuel.

2. Rankings of the SWFs are available from the Sovereign Wealth Fund Institute, https://www.swfinstitute.org/sovereign-wealth-fund-rankings/. As of April 2019, the ten largest SWFs are located in Norway, China, the UAE—Abu Dhabi, Kuwai, China—Hong Kong, Saudi Arabia, China, Singapore, Singapore, and Saudi Arabia. The ratio between the size of the largest and the 10th largest is 2.99.

3. As of 31 March 2018, the five largest equity investments are in Apple, Microsoft, Nestlé, Alphabet and Royal Dutch Shell. Up to seven percent of the Fund can be invested in real estate. As of 2018, investments in real estate (office buildings) are focused in (but not limited to) the cities of New York, Boston, Washington D.C, San Francisco, London, Paris, Berlin, Munich, Tokyo and Singapore.

4. That said, in recent years two discussions have been taking place. First, there is a concern that the Fund does not have its own board but that it is part of the organization of the Norges Bank (the Norwegian Central Bank). Second, there is an academic debate on the cost-benefit of following an active vs a passive investment strategy. That is, should the Fund invest so that it beats the market, or should it be satisfied with a general market return?

5. As I have stated, the Fund itself wants to be transparent (it is considered to be one the most transparent SWFs) and of high integrity. As an example of the latter, the employees of NBIM are not allowed to have their lunch paid by someone else, and they are not allowed to receive gifts of any kind. If, however, they receive a gift that for some reason cannot be returned, the NBIM holds an internal lottery and the money is given to charities such as the Salvation Army (Skredderberget, 2015, p. 110).

6. The formal title of the Ottawa Treaty is “The Convention on the Prohibition of the Use, Stockpiling, Production and Transfer of Anti-Personnel Mines and on their Destruction.” In 1997, the Norwegian Nobel Committee awarded the Nobel Peace Prize to the International Campaign to Ban Landmines and its leader Jody Williams.

7. The same spokesperson (Siv Jensen) became Minister of Finance in 2013, and two years later she suggested to close down the Council of Ethics. However, the Parliament voted “no” on the proposal.

8. http://etikkradet.no/recommendations/.

9. An English translation of the guidelines is available here: https://www.regjeringen.no/globalassets/upload/fin/statens-pensjonsfond/formelt-grunnlag/guidelines-for-observation-and-exclusion-from-the-gpfg—17.2.2017.pdf .

10. http://happyplanetindex.org/countries/norway .

11. In 2017, the Oil Fund proposed to stop investing in oil and gas companies (Sheppard, 2017). This seemed like a good environmental decision and was celebrated as a victory by the environmental movement. However, the argument from the NBIM was not grounded in environmental considerations; rather, it was a purely financial decision to reduce the Fund’s exposure to the overall risk from the energy sector because Norway’s income originates from the oil and gas sector.

12. The first leader of the Council, Gro Nystuen, later admitted that the Wal-Mart case had become a much larger issue than expected (Andersen, 2008). In that respect, Whitney was spot on.

13. For a discussion on stakeholder duties, see for example Sandbu (2012), and for an overview of foreign ethical divestment, see Nyuur, Amankwah-Amoah, and Osabutey (2017).

14. This last statement is rather remarkable given that Halvorsen represents the Socialist Left Party.

Additional information

Funding

The author received no direct funding for this research.

Notes on contributors

John A. Hunnes

John A. Hunnes is an Associate Professor at the School of Business and Law, University of Agder, Norway. He holds a Dr. Oecon degree (PhD Economics) from NHH Norwegian School of Economics where he also received his degree Cand. Oecon (MSc Economics). His research interests are Business Ethics and Economic History. Hunnes’ research is published in journals, such as the Financial History Review, The Journal of European Economic History and International Journal of Manpower. Hunnes has co-authored and contributed to chapters in books published by Palgrave Macmillan and The University of Chicago Press. In 2016, he co-authored the book Financial Crises in a Historical Perspective (in Norwegian). Hunnes has also written several popularized articles and op-eds in Norwegian.